Andreessen Horowitz Went All In on Crypto at the Worst Possible Time | Kanebridge News
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Andreessen Horowitz Went All In on Crypto at the Worst Possible Time

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

By BERBER JIN
Thu, Oct 27, 2022 9:09amGrey Clock 5 min

As cryptocurrency prices soared last year, no investor bet more on the sector than Andreessen Horowitz.

The storied venture-capital firm had developed a reputation as Silicon Valley’s greatest crypto bull, thanks largely to a 50-year-old partner named Chris Dixon who was one of the earliest evangelists for how the blockchain technology powering cryptocurrencies could change business. His unit was one of the most-active crypto investors last year, and in May announced a $4.5 billion crypto fund, the largest ever for such investments.

The timing wasn’t good.

Prices for bitcoin and other cryptocurrencies have plunged this year in the midst of a broad market downturn, erasing billions of dollars in paper gains for Andreessen’s funds. Consumer demand has vanished for some of the firm’s most-prized crypto startups, while others are facing increased scrutiny from regulators.

Andreessen’s flagship crypto fund shed around 40% of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10% to 20% drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.

Despite the record cash pile, Andreessen has dramatically slowed the pace of its crypto investments this year.

Now Mr. Dixon has to convince nervous investors that Andreessen didn’t overplay its hand for the May fund, which other crypto venture capitalists said is too large for a sector headed into a so-called crypto winter.

“They’ve just pushed it so far with crypto that I’m not sure they can rebalance,” said Ben Narasin, a general partner at the VC firm Tenacity Venture Capital.

In an interview, Mr. Dixon said he remains faithful to the crypto-centric vision of the internet called Web3 that underpins Andreessen’s push into the sector—a view that blockchain versions for a range of services will return financial control and power to users in the form of cryptocurrencies they can earn and trade.

Mr. Dixon said that the sector is still in the early stages of acquiring users and that he isn’t sure when mass adoption of blockchain services will occur. Crypto “is about the political and governing structure of the internet,” he said. “We have a very long-term horizon.”

Mr. Dixon’s path from the periphery of Andreessen mirrors the firm’s transformation into a crypto powerhouse.

A coder from childhood who earned master’s degrees in both philosophy and business, he helped found and sell two startups—one in cybersecurity and the other in e-commerce—and co-founded the VC firm Founder Collective. He also nurtured interests in such emerging technologies as virtual reality and 3-D printing.

He joined Andreessen in 2012. The firm, founded three years earlier by Marc Andreessen and Ben Horowitz, was quickly becoming one of the biggest and most influential tech investors, driven by Mr. Andreessen’s famed mantra that “software is eating the world.”

When many major investors still dismissed bitcoin as little more than a haven for money launderers and speculators, Mr. Dixon championed its possibilities, penning blog posts—something of a gospel among young crypto entrepreneurs—that described how bitcoin would create a new, decentralised financial system. Within two years, Andreessen had invested almost $50 million into bitcoin-related projects, including the cryptocurrency exchange Coinbase.

Mr. Dixon’s zeal for the area increased with the 2015 launch of Ethereum, which used the same type of blockchain-based, distributed record-keeping to let developers build applications beyond payments. Mr. Dixon likened Ethereum’s arrival to the creation of the iPhone App Store and said it showed that the crypto-investing universe was larger than imagined. He told Messrs. Andreessen and Horowitz that he wanted to shift his focus away from traditional investing and start a dedicated crypto fund, said people familiar with the matter.

The $350 million crypto fund, launched in 2018, was the first of its kind created by a traditional venture firm. Andreessen remained a bull that year as bitcoin and other cryptocurrencies lost the majority of their value, and raised a second crypto fund in 2020 totalling $515 million.

Mr. Dixon and his team also increasingly touted their vision for Web3. They argued that blockchain’s creation of currency-like tokens for users could give them more control and financial benefit for blockchain-based versions of services such as ride-sharing and social media, undermining the power of dominant tech monopolies.

In addition to investing in crypto companies, Andreessen purchased the tokens they created, effectively betting separately on the company and its product. The unconventional strategy delivered windfalls during the crypto bull market but also made the deals riskier.

As of the end of last year, the first crypto fund had multiplied its initial investment by 10.6 times after fees, making it the best-performing fund on paper in Andreessen’s history, according to documents viewed by The Wall Street Journal.

Andreessen returned over $4 billion of shares to its investors in the two months after Coinbase went public through a direct listing in April 2021, public filings show, making it one of the most-lucrative bets ever made in venture-capital history. Andreessen’s third venture fund, which backed Coinbase in 2013, saw a paper gain of 9.7 times after fees as of Dec. 31, trailing only the first crypto fund in terms of performance at the time, the documents showed.

Buoyed by the returns, Andreessen went on a fundraising blitz. It set out to raise $1 billion for its third crypto fund and ultimately raised $2.2 billion in June 2021.

Mr. Dixon said the crypto team’s strategy was to use its cash pile to write large checks into startups promising to reinvent everything from digital art to online gaming using the blockchain. The aggressive approach often precluded it from coleading rounds with other investors and made the firm a significant shareholder.

Andreessen backed 56 U.S.-based crypto deals last year and was the second-largest crypto funder in terms of investment volume after Coinbase Ventures, according to PitchBook Data Inc. Some early investments seemed to take off. The valuation of OpenSea, a nonfungible token marketplace, soared by over 100 times to $13 billion in January 2022, ten months after Andreessen led an early funding round.

In its push to dominate the sector, Andreessen discarded established investment norms. In November, its investors tried—and failed—to invest in Magic Eden, an NFT marketplace, even though the firm already backed OpenSea, said people familiar with the matter. Venture capitalists have long avoided backing potential rivals because it damages their reputation with founders who dislike the practice. Mr. Dixon said the fund doesn’t back companies that directly compete with its existing portfolio.

Within months, the market turned.

Demand for many Andreessen-backed companies vaporised as users dumped their crypto holdings. OpenSea’s monthly trading volume has plummeted since its December funding round in the midst of a broader collapse in the market for NFTs, while Coinbase’s monthly active users declined 20% in the second quarter from last year’s fourth-quarter peak of 11.2 million. Both companies have cut around one-fifth of their staff this year.

Andreessen is also contending with harsher regulatory scrutiny of crypto startups and the funds that backed them, which is threatening to put an end to the era of loose oversight that enabled the creation of thousands of cryptocurrencies.

The firm is making adjustments. It announced nine crypto startup deals in the third quarter, down from a high of 26 crypto deals in the fourth quarter of last year, according to PitchBook. The firm also marked down the value of its second and third crypto funds this year, though the declines aren’t as severe as what the first crypto fund endured, people familiar with the matter said.

Meanwhile, the firm’s crypto investments are plunging. Solana, an upstart cryptocurrency that the firm bought in June 2021, has shed over 80% of its value since the beginning of the year. In the first six months of this year, Andreessen lost $2.9 billion of its remaining stake in Coinbase as the crypto exchange’s stock price cratered by more than 80%.

Mr. Dixon said the market’s downturn is an opportunity for the fund to continue backing crypto entrepreneurs, similar to what it did in previous down markets.

“What I look at is not prices. I look at the entrepreneur and developer activity,” Mr. Dixon said. “That’s the core metric.”



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New initiatives to drive the country’s future growth and boost its global competitiveness.

Fri, Jun 21, 2024 3 min

The UAE Ministry of Finance has introduced a series of innovative initiatives aimed at propelling the country towards future growth and boosting its global competitiveness. These initiatives align with the ‘We the UAE 2031’ vision and support the UAE’s ambition to establish itself as a global hub for the new economy over the next decade.

These initiatives are designed to create significant positive impacts across all sectors in a short timeframe. They play a crucial role in accelerating the UAE Government’s strategic foresight objectives, with a strong emphasis on financial outcomes that align with the ‘We the UAE 2031’ vision. This vision requires intensified efforts to meet key national indicators, which will positively influence society and the country’s diverse industries and sectors.

The UAE Ministry of Finance today announced the implementation of transformational projects that support the country’s efforts to transition towards the future and enhance its competitiveness, in line with the ‘We the UAE 2031’ vision and the UAE’s efforts to become the global hub for the new economy over the next ten years.

These projects are unique in achieving a significant positive impact in all sectors within short periods of time. These projects support the UAE Government’s efforts to accelerate the achievement of the government’s foresight objectives, with a focus on achieving financial results in line with the ‘We the UAE 2031’ vision, which requires doubling efforts to achieve key national indicators of the vision positively reflecting on society and the country’s various industries and sectors.

His Excellency Mohamed Hadi Al Hussaini, Minister of State for Financial Affairs, highlighted that the UAE, in its second 50-year journey, prioritizes developing governmental work to be able to meet the future requirements of the nation by adopting new methodologies and ways of working through the digital transformation. He noted that these are pursued by the UAE to achieve a quantum leap in project implementation, budget preparation, and resource management.

His Excellency emphasized the Ministry’s efforts to develop government services by focusing on areas that enhance the competitiveness of the economic environment and its ability to attract foreign investments. Among these efforts are empowering Emiratis to represent the UAE internationally.

Transformational Projects

The first project, ‘Developing the Local Debt Capital Market in the Country’, is a joint project with the Central Bank of the UAE by establishing programs for issuing local public debt instruments, represented by bonds and Islamic treasury sukuk in dirhams, and primarily trading them in the primary and secondary local markets, aiming to build and enhance the yield curve in UAE dirhams and provide reference pricing points for local financing operations carried out by financial institutions within the state, thereby enhancing market activity, expanding the investor base, and developing a highly efficient financial market in the UAE.

The Ministry of Finance is also working on implementing the project ‘Enhancing the Presence of Specialized Emirati Leadership in the Financial Field at International Forums’ which serves as the main supporter in making the UAE the most prominent in international cooperation over the next ten years. This is a joint project with the Ministry of Foreign Affairs, aimed at investing in empowering national talents to occupy Emirati memberships in leadership positions within international organizations, their committees, or federations linked to the country’s agenda. This will enhance the UAE’s presence in international forums and support its participation in shaping international strategic decisions and building economic partnerships with countries worldwide, through the leadership and membership of national talents from the Ministry of Finance in various international organizations, forums, and boards of directors.

 

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Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

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